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Business Continuation Arrangement

In a Stock Redemption Arrangement, also know as a Entity Buy-Out, the business entity agrees to purchase the deceased owner's interest in the business.  To create the assets required for the Stock Redemption Arrangement, the business entity purchases, owns and is the beneficiary of life insurance policies insuring the lives of each owners.



Problem solved if Owner Jones dies....



Tax Considerations for a Properly Structured Stock Redemption Arrangement:

  • The death benefit can be received by the business income tax-free
  • The death benefit can be excluded from the estate of teh insured
  • A step-up in basis for surviving owners depends on the type of business entity.
  • The redemption of stock by the business entity may not be an income tax-free event in a family owned business.

Financial Considerations for a Properly Structured Stock Redemption Arrangement

  • On Policy is needed for every business owner.
  • The business entity is the owner of the policies; therefore, the business entity pays the premium on each policy.
  • Premium payments are not a tax-deductible business expense. 

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